India: Management fees under UK treaty; trade discounts

India: Management fees under UK treaty; trade discounts

The KPMG member firm in India has prepared reports on the following tax developments (read more at the hyperlinks provided below):


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Management and procurement services not taxable as “fees for technical services” under the India-UK income tax treaty: India’s Authority for Advance Rulings concluded that services rendered by a group director to its group company in India were “managerial services” that, as rendered by the UK procurement team, did not make available any technical knowledge, skills, etc. Therefore, such services were not taxable as fees for technical services under the India-UK tax treaty. Also, because the services are general and routine in nature and do not create any intellectual property, the payments did not qualify as a “royalty” under the tax treaty. The case is: Measurement Technology Ltd.

Trade discount payments treated as sales promotion, not commission: The Visakhapatnam Bench of the Income-tax Appellate Tribunal held that a payment made by the taxpayer under a trade discount scheme constitutes a sales promotion expenditure and is not treated as a commission under section 194H of the Income-tax Act, 1961. The tribunal found that the sale between the taxpayer, another Indian company, and the retail dealers was made on a “principal-to-principal” basis. The retail dealers did not provide any service to the taxpayer in that there is no direct connection between the taxpayer and retail dealers. The case is: United Breweries Ltd.

Conversion of interest payable into equity shares: The Delhi High Court held that the conversion of a portion of interest into equity shares must be considered to be an actual payment within the meaning of section 43B of the Income-tax Act, 1961. The decision addresses when interest payable on a loan is converted into shares in the name of the lender/creditor. The case is: Rathi Graphics Technologies Ltd.

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